In everyday business, partnerships are unavoidable. To make these partnerships formal, permanent and legally right, contracts are usually employed. Unsurprisingly contracts are considered standard practice for business partnerships all over the world. Ideally, partnerships are expected to last as long as possible or as necessary, with the assumption that everything’s going well. But what happens when they don’t? What happens when one or both of the parties to the agreement decides to end the partnership? That is where a rescission agreement, also called a mutual rescission agreement, comes in.

Rescission Agreement Templates

What is a mutual rescission agreement?

Partnerships have the power to bring out the best in one company or individual, and they work best when all involved companies are positioned to benefit from each other.

Contract rescission is the process of terminating the contract or supporting a partnership between two or more business individuals or companies. Through the termination, the mutual rescission agreement rescinds all existing claims the involved parties may have against each other, and reverts them back to where they were before the contract.

A contract rescission agreement, commonly known as a mutual rescission agreement when all parties involved are on board, is a legal document outlining the intention of all involved parties to annul or cancel their existing contract or partnership.

All involved parties must assent to the termination, and being a last resort remedy, it must be with the backing of a judge. If you’re looking to have a contract rescinded, check out one of our many contract rescission agreement templates here.

Mutual Release Agreements

When does a mutual rescission agreement come in handy?

It’s important to know that rescission is considered a last resort solution which means that it only operates in special situations. A rescission cannot be applied just because the involved parties feel like it. Rescission is only applied when necessary, such as when:

  • There is a loss of capacity by one or all of the involved parties to act on some or all of the terms set in the contract. This might be due to intoxication, illness or even mental and physical incapacitation.
  • There is evidence that one or some of the parties to the contract signed under duress or by force, such as through blackmail, extortion or with threats of violence.
  • There is evidence of fraud being committed by one or all of the member’s party to the contract, such that the terms outlined in the agreement are not met as planned.
  • There is evidence of misunderstanding of some of the contract’s clauses by one or all of the parties to the contract, such that the desired results are not achieved.
  • All involved parties agree to rescind the contract rather than employ other solutions, such as filing suits.
  • The contract itself is likely to be negatively received by the public that would be directly or indirectly affected by it. In this case, a contract rescission would be a perfect fit.
  • If consideration for the contract has been deemed illegal, has failed in its purpose or has proven inadequate.
  • When one of the parties to the agreement declares bankruptcy or insolvency.
    When might a contract rescission agreement be revoked?

As noted earlier, a rescission of a contract is a last-resort solution. Still, if found inadequate, it can be revoked or found inapplicable. Some of the circumstances under which this is possible include;

  • When there is evidence that the parties to the contract have all performed their roles in line with the treaty.
  • When the party filing for contract rescissions is found to have requested monetary damages already. Under the law, the party filing for the rescission can only file first and ask for damages later. If the party is found to have done otherwise, the judge is free to revoke their rescission request.

Mutual Rescission And Release Agreements

The variations of a rescission agreement that you should know.

By its nature, a rescission agreement requires that an existing contract is nullified and rescinded completely. The functions it does not cover are taken up by other agreements, most of them variations of the rescission agreement itself. Some common variations include;

  • The mutual rescission and release agreement
  • The mutual release agreement

Note the presence of the term ‘mutual’ in both agreements, which signifies the consent of all involved parties to the actions being supported by the agreement.

  • The mutual release agreement
    If two or more companies involved in a partnership find themselves in endless legal disputes with each other, they can always employ and agree to a mutual release agreement as a solution. A mutual release agreement is a document that frees all parties involved in a partnership of all claims against each other. And much like the way a mutual rescission agreement operates, this frees partners of each other and free to pursue other ventures.
  • The mutual rescission and release agreement
    When two or more partners involved in a partnership find that their partnership might not work out as planned for one reason or another, and that they have legal claims aimed at each other, a mutual rescission and release agreement can be employed as a 2-in-1 solution.
    The agreement is basically a combination of the rescission and release agreements, which means that once signed, it cancels the existing partnership and rolls back the relationship between the partners to its pre-contract days, while also rendering any legal disputes between the partners dropped.
    Both agreements are last resort solutions. They also require all involved parties to be in agreement and in the knowledge of their rights regarding the proceedings. As a rule of thumb, a lawyer must be involved in the drafting and signing of the agreements.

Rescission Agreement Forms

Some factors to consider before signing a mutual rescission agreement

Before you go ahead and request for contract rescission with your partners, there are a few factors you’ve got to consider.

  • Is it really necessary?
    You have to be sure if going ahead with a request for rescission is quite necessary first. If there are other solutions to the problems affecting the partnership you are part of, try to use them first before going forward with a rescission because it is a permanent decision.
  • Is it appropriate given the existing conditions?
    Sometimes, there are more appropriate solutions to troubled partnerships than a contract rescission. Also, there have to be proper grounds on which a rescission is granted, which adds a question of appropriateness to the discussion. You have to know if your grounds for requesting rescission are appropriate.
  • How do you benefit (or lose)?
    There is always a question of how a contract rescission benefits whoever requests for it, and with many cases, such as when one party to the contract has proven incapable of meeting their end of the bargain, there is always the opportunity to request for monetary damages after signing a contract rescission. So, how do you benefit? Or do you lose? The choice is yours.
  • Do you have a lawyer to guide you through the process?
    It’s important to have a lawyer by your side as you navigate the murky waters of contract rescission. A mutual rescission agreement might seem like a small disposable document, but it requires steady navigation and proper understanding of how it stands legally right from the beginning. So, unless you’re a lawyer yourself, it’s imperative that you get yourself a lawyer for your rescission process.

The benefits of a rescission agreement

Rescission agreements come with their fair share of risks, but in the same vein, there are lots of attached benefits, including these below.

  • Ease of mind
    A mutual rescission agreement provides a clear, no strings attached ending to a contract, which can allow both parties ease of mind. And since a rescission means the relationship between the involved parties has been rewound back to their pre-contract days, it literally sets them free to pursue other contracts or partnerships.
  • Legal protection
    A mutual rescission and release agreement can serve as legal insulation should any of the parties involved sue or lay claims in court way after it has been signed. In other words, a rescission agreement helps insure the future.
  • It helps bolster partnerships
    A mutual rescission agreement or mutual release agreement may be the last resort solution, but it can still be averted. During discussions between partners regarding contract rescission, issues affecting the partnership can be raised and possibly fixed, before going ahead with the rescission.

Drafting a rescission agreement

If you feel like you will need to request a rescission of contract because of any of the circumstances listed above, you have two options. You can either draft your own agreement, basing on a template or use an existing template.
It is recommended that you use an existing template such as one of the mutual release and rescission agreement templates because it comes fitted with all necessary clauses but can still be altered to fit your specific situation. But if you prefer to draft your own agreement, we recommend that you approach a good lawyer. Of course, that has it’s own price which you should be ready for.

TemplateLab May 5th, 2019